arXiv · arXiv q-fin · 2020
One of the most challenging aspects in the analysis and modelling of financial markets, including Credit Default Swap (CDS) markets, is the presence of an emergent, intermediate level of structure standing in between the microscopic dynamics of individual financial entities and the macroscopic dynamics of the market as a whole. This elusive, mesoscopic level of organisation is often sought for via factor models that …
Ioannis Anagnostou, Tiziano Squartini, Drona Kandhai, Diego Garlaschelli
arXiv · arXiv q-fin · 2009
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to calibrate this model using a chosen number of reference Credit Default Swap (CDS) market quotes. In general this model can be seen as a possible extension of the time-varying AT1P mo…
Damiano Brigo, Marco Tarenghi
arXiv · arXiv q-fin · 2008
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market under the LIBOR market model. A "convexity adjustment"-like correction is present in the related formula…
Damiano Brigo
arXiv · arXiv q-fin · 2009
In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini (2006)[15]. The models can be calibrated exactly to credit spreads using efficient closed-form formulas for default probabilities. Default events are caused by the value of the firm …
Damiano Brigo, Massimo Morini, Marco Tarenghi
arXiv · arXiv q-fin · 2020
In this paper the zero vanna implied volatility approximation for the price of freshly minted volatility swaps is generalised to seasoned volatility swaps. We also derive how volatility swaps can be hedged using a strip of vanilla options with weights that are directly related to trading intuition. Additionally, we derive first and second order hedges for volatility swaps using only variance swaps. As dynamically tra…
Frido Rolloos
arXiv · arXiv · 2024
The financial industry has undergone a significant transition from the London Interbank Offered Rates (LIBORs) to Risk Free Rates (RFRs) such as, e.g., the Secured Overnight Financing Rate (SOFR) in the U.S. and the Cash Rate (AONIA) in Australia, as primary benchmark rates for borrowing costs. The paper examines the pricing and hedging method for financial products in a cross-currency framework with the special emph…
Yining Ding, Ruyi Liu, Marek Rutkowski
OpenAlex · Review of Financial Studies · 2009 · cites 608
This paper attempts to explain the credit default swap (CDS) premium, using a novel approach to identify the volatility and jump risks of individual firms from high-frequency equity prices. Our empirical results suggest that the volatility risk alone predicts 48% of the variation in CDS spread levels, whereas the jump risk alone forecasts 19%. After controlling for credit ratings, macroeconomic conditions, and firms'…
Benjamin Yibin Zhang, Hao Zhou, Haibin Zhu
OpenAlex · European Journal of Finance · 2020 · cites 6
Over the last decade, the foreign exchange derivatives market has witnessed a collapse of covered interest parity (CIP). Not only does this collapse give rise to large deviations from CIP, it has unlocked a stream of exploitable arbitrage opportunities across currencies. In this paper, we introduce two new factors – inflation differential and relative economic performance – as potential drivers of deviations from CIP…
Oyakhilome Ibhagui
arXiv · arXiv q-fin · 2025
As decentralized finance (DeFi) evolves, distinguishing between user behaviors - liquidity provision versus active trading - has become vital for risk modeling and on-chain reputation. We propose a behavioral scoring framework for Uniswap that assigns two complementary scores: a Liquidity Provision Score that assesses strategic liquidity contributions, and a Swap Behavior Score that reflects trading intent, volatilit…
Dhanashekar Kandaswamy, Ashutosh Sahoo, Akshay SP, Gurukiran S, Parag Paul
arXiv · arXiv q-fin · 2022
The standard approach for compensating liquidity providers on many decentralized exchanges (DEX) for serving as counter-party to swaps is through charging a small percentage of fees. The expected payoff from the cash flow of this mode of market making has yet to be mathematically formulated in terms of volatility in the existing literature. We provide here a preliminary derivation of the payoff formula, by making the…
Jin Hong Kuan
arXiv · arXiv q-fin · 2021
Automated market makers (AMM) have grown to obtain significant market share within the cryptocurrency ecosystem, resulting in a proliferation of new products pursuing exotic strategies for horizontal differentiation. Yet, their theoretical properties are curiously homogeneous when a set of basic assumptions are met. In this paper, we start by presenting a universal approach to deriving a formula for liquidity provisi…
Johannes Rude Jensen, Mohsen Pourpouneh, Kurt Nielsen, Omri Ross
arXiv · arXiv · 2026
Automated Market Makers based on concentrated liquidity, such as Uniswap v3, significantly improve capital efficiency but expose Liquidity Providers (LPs) to adverse selection costs, formalized as Loss-Versus-Rebalancing (LVR). While theoretical literature quantifies these costs, the interplay between realistic blockchain microstructure and endogenous pricing mechanisms remains under-explored. This paper develops a g…
Daniele Maria Di Nosse, Fabrizio Lillo
arXiv · arXiv · 2023
We provide a general HJM framework for forward contracts written on abstract market indices with arbitrary fixing and payment adjustments, and featuring collateralization in any currency denominations. In view of this, we first provide a thorough study of cross-currency markets in the presence of collateral and incompleteness. Then we give a general treatment of collateral dislocations by describing the instantaneous…
Alessandro Gnoatto, Silvia Lavagnini
arXiv · arXiv · 2017
Cash collateral is perfect in that it provides simultaneous counterparty credit risk protection and derivatives funding. Securities are imperfect collateral, because of collateral segregation or differences in CSA haircuts and repo haircuts. Moreover, the collateral rate term structure is not observable in the repo market, for derivatives netting sets are perpetual while repo tenors are typically in months. This arti…
Wujiang Lou
arXiv · arXiv · 2026
We provide a large-scale empirical audit of DEX routing using 2.98 million WETH-USDC swaps on Ethereum. Comparing realized routes with optimized benchmarks, we measure an average shortfall of 2.02 bps per trade or \$24 million. To attribute losses, we introduce three reproducible optimal benchmarks: a Support-Constrained Optimum (SCO) that evaluates split quality conditional on the pools actually used; a Full-Venue O…
Weiye Xi, Ciamac C. Moallemi
arXiv · arXiv · 2026
The Metaverse faces complex resource allocation challenges due to diverse Virtual Environments (VEs), Digital Twins (DTs), dynamic user demands, and strict immersion needs. This paper introduces CIVIC (Cooperative Immersion Via Intelligent Credit-sharing), a novel framework optimizing resource sharing among multiple Metaverse Service Providers (MSPs) to enhance user immersion. Unlike existing methods, CIVIC integrate…
Amr Aboeleneen, Mohamed Abdallah, Aiman Erbad, Amr Salem
arXiv · arXiv · 2026
Multimodal time-to-event prediction often requires integrating sensitive data distributed across multiple parties, making centralized model training impractical due to privacy constraints. At the same time, most existing multimodal survival models produce single deterministic predictions without indicating how confident the model is in its estimates, which can limit their reliability in real-world decision making. To…
Abhilash Kar, Basisth Saha, Tanmay Sen, Biswabrata Pradhan
arXiv · arXiv · 2026
Generating synthetic financial time series that preserve the statistical properties of real market data is essential for stress testing, risk model validation, and scenario design. Existing approaches struggle to simultaneously reproduce heavy-tailed distributions, negligible linear autocorrelation, and persistent volatility clustering. We developed a hybrid hidden Markov framework that discretized excess growth rate…
Abdulrahman Alswaidan, Jeffrey D. Varner